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ADR
ADR
Adcorp - Unaudited group interim results for the period ended
30 June 2006
Adcorp Holdings Limited
("Adcorp" or "the Group")
Registration number 1974/001804/06
Share code: ADR & ISIN number: ZAE000000139
Leaders in human capital management
UNAUDITED GROUP INTERIM RESULTS
for the period ended 30 JUNE 2006
Salient features
* Headline earnings up by 28%
* Headline earnings per share up by 24%
* Cash conversion ratio 82%
* Debtors days down by three days to 30 days
* Interim dividend of 42 cents per share - up 20%
* Operating margin 4,7%
Income statement
for the six months ended 30 June 2006
Unaudited Unaudited Unaudited
Total Continued Discontinued
operations operations operations Unaudited Audited
6 months 6 months 6 months 6 months 12 months
30 June 30 June 30 June 30 June 31 December
2006 2006 2006 2005 2005
R"000 R"000 R"000 R"000 R"000
Revenue 1 270 680 1 214 993 55 687 1 102 668 2 359 652
Cost of sales (915 330) (898 052) (17 278) (778 341) (1 648 528)
Gross profit 355 350 316 941 38 409 324 327 711 124
Other income 4 044 4 022 22 7 795 18 178
Administrative
expenses (113 348) (97 639) (15 709) (107 415) (238 923)
Marketing and
selling
expenses (152 829) (135 639) (17 190) (140 037) (298 052)
Other
operating (33 716) (29 543) (4 173) (31 921) (75 920)
expenses
Operating
Profit 59 501 58 142 1 359 52 749 116 407
Interest
received 1 994 1 980 14 1 660 2 587
Interest paid (2 087) (2 086) (1) (2 765) (4 026)
Share of
profits from
associates 2 280 782 1 498 1 719 3 294
Impairment of
goodwill - - - - (19 112)
(Loss)/profit
on sale of
property and
equipment (19) (36) 17 201 3 322
Loss on
disposal of
operations and
subsidiaries (20 602) - (20 602) - (333)
Profit before
taxation 41 067 58 782 (17 715) 53 564 102 139
Taxation (17 056) (15 638) (1 418) (16 758) (35 010)
Profit for the
year 24 011 43 144 (19 133) 36 806 67 129
Attributable to:
Ordinary
shareholders 24 910 44 043 (19 133) 35 758 65 185
Minority
shareholders (899) (899) - 196 1 012
BEE
shareholders - - - 852 932
Profit for the
year 24 011 43 144 (19 133) 36 806 67 129
Earnings per
share
Basic (cents) 58,3 103,0 (44,7) 86,5 156,2
Diluted 57,3 101,3 (44,0) 84,4 154,8
(cents)
Distribution
to
shareholders
Interim
dividend
(cents) 42 35 35
Final dividend
(cents) in
respect of
prior year 105 80 80
Reconciliation
of headline
earnings
Profit for the
year 24 011 36 806 67 129
Impairment of
goodwill - - 19 112
Minority
shareholders"
share in
interest 899 (196) (1 012)
BEE share of
super profits - (852) (932)
Loss/(profit)
on sale of
property and
equipment 19 (201) (3 210)
Loss on
disposal of
operations and
subsidiaries 20 602 - 333
Headling
earnings 45 531 35 557 81 420
Headline
earnings per
share
Basic (cents) 106,5 86,0 195,1
Diluted 104,8 83,9 193,4
(cents)
Weighted
average shares
- 000"s 42 757 41 327 41 730
Diluted
weighted
average shares
- 000"s 43 441 42 373 42 103
Balance sheet
as at 30 June 2006
Unaudited Unaudited Audited
30 June 30 June 31 December
2006 2005 2005
R"000 R"000 R"000
Assets
Non-current assets 105 098 127 396 119 723
Property and equipment 27 579 50 039 34 667
Goodwill 29 592 47 971 42 015
Intangible assets 21 853 3 140 13 708
Investment in associates 1 852 5 905 4 092
Other non-current receivables 3 567 - -
Deferred taxation 15 655 20 341 25 241
Assets classified as held for sale 5 000 - -
Current assets 488 202 395 551 438 307
Trade and other receivables 327 884 289 291 354 562
Taxation prepaid 8 103 6 143 8 302
Bank balance, cash and deposits 109 881 100 117 75 443
Assets classified as held for sale 42 334 - -
593 300 522 947 558 030
Equity and Liabilities
Capital and reserves 238 282 250 419 252 162
Share capital 1 074 1 043 1 065
Share premium 52 693 39 115 48 679
Treasury shares (1 463) (3 379) (2 127)
Share-based payments reserve 4 792 2 122 2 821
Accumulated profits 179 629 209 543 199 268
Minority shareholders" interest 1 480 1 218 2 379
BEE shareholders" interest 77 757 77
Non-current liabilities 8 462 2 532 7 318
Non-interest-bearing non-current
liabilities 5 531 2 532 5 541
Deferred tax 2 931 - 1 777
Current liabilities 346 556 269 996 298 550
Non-interest-bearing current
liabilities 221 269 201 231 241 837
Trade and other payables 142 498 175 135 169 513
Amounts due to vendor 787 2 500 2 187
Provisions 36 133 21 563 58 523
Taxation 6 001 2 033 11 614
Liabilities classified as held for
sale 35 850 - -
Interest-bearing current 125 287 68 765 56 713
liabilities
Current portion of interest-
bearing non-current liabilities - 67 -
Bank overdraft 125 287 68 698 56 713
Total equity and liabilities 593 300 522 947 558 030
Number of ordinary shares in
issue - 000"s 43 005 41 704 42 103
Net asset value per share - cents 554 600 599
Abridged cash flow statement
for the six months ended 30 June 2006
Unaudited Unaudited Audited
30 June 30 June 31 December
2006 2005 2005
R"000 R"000 R"000
Operating activities
Cash generated by operations before
working capital changes 69 463 61 743 134 814
Increase in working capital (20 715) (8 393) (42 097)
Cash generated by operations 48 748 53 350 92 717
Net interest paid (92) (1 105) (1 277)
Taxation paid (21 658) (13 363) (26 210)
Net dividend paid (43 340) (2 330) (46 996)
Cash (utilised)/retained by
operations (16 342) 36 552 18 234
Cash flows from investing (22 327) (9 493) (12 222)
activities
Cash flows from financing 4 533 5 704 14 062
activities
Net (decrease)/increase in cash and
cash equivalents (34 136) 32 763 20 074
Net cash and cash equivalents at
the beginning of the period 18 730 (1 344) (1 344)
Net cash and cash equivalents at
the end of the period (15 406) 31 419 18 730
Abridged statement of equity
for the six months ended 30 June 2006
Share-based
Share Share Treasury payments
capital premium shares reserve
Unaudited R"000 R"000 R"000 R"000
Balance as at 31 December 1 065 48 679 (2 127) 2 821
2005
Shares issued 9 4 014 - -
Treasury shares sold - - 664 -
Share-based payments - - - 1 971
Dividend distributions - - - -
Minority shareholders" - - - -
share of profits
Profit for the six months
to June 2006 - - - -
Balance as at 30 June 2006 1 074 52 693 (1 463) 4 792
Minority BEE
Accumulated shareholders" shareholders"
profit interest interest Total
Unaudited R"000 R"000 R"000 R"000
Balance as at 31 199 268 2 379 77 252 162
December 2005
Shares issued - - - 4 023
Treasury shares (145) - - 519
sold
Share-based - - - 1 971
payments
Dividend (44 404) - - (44 404)
distributions
Minority 899 (899) - -
shareholders" share
of profits
Profit for the six 24 011 - - 24 011
months to June 2006
Balance as at 30 179 629 1 480 77 238 282
June 2006
Segment report
for the six months ended 30 June 2006 and the comparative six months
ended 30 June 2005
Operating
Operating profit
Revenue profit margin
2006 2005 2006 2005 2006 2005
Unaudited R"000 R"000 R"000 R"000 % %
Central costs - 4 513 (14 265) (12 374) - -
Staffing 1 211 923 1 018 415 69 337 58 818 5,7 5,8
Permanent
recruitment 167 042 156 595 15 157 11 311 9,1 7,2
Flexible
staffing 1 044 881 861 820 54 180 47 507 5,2 5,5
Subtotal 1 211 923 1 022 928 55 072 46 444 4,5 4,5
Non-staffing -
discontinued 55 687 79 740 1 359 6 305 2,4 7,9
- continued 3 070 - 3 070 - 100,0 -
TOTAL 1 270 680 1 102 668 59 501 52 749 4,7 4,8
Contribution
to group Asset carrying Liabilities
profit value carrying value
2006 2005 2006 2005 2006 2005
Unaudited % % R"000 R"000 R"000 R"000
Central costs (24,0) (23,5) 269 254 291 762 158 250 94 989
Staffing 116,6 111,5 283 825 184 662 157 627 127 089
Permanent
recruitment 25,5 21,4 114 118 66 224 40 544 46 838
Flexible staffing 91,1 90,1 169 707 118 438 117 083 80 251
Subtotal 92,6 88,0 553 079 476 424 315 877 222 078
Non-staffing -
discontinued 2,3 12,0 35 613 46 523 36 554 50 450
- continued 5,1 - 4 608 - 2 587 -
TOTAL 100,0 100,0 593 300 522 947 355 018 272 528
Additions
to property
Depreciation and equipment
2006 2005 2006 2005
Unaudited R"000 R"000 R"000 R"000
Central costs 632 575 129 88
Staffing 5 918 5 578 6 039 5 104
Permanent recruitment 1 648 1 335 1 832 782
Flexible staffing 4 270 4 243 4 207 4 322
Subtotal 6 550 6 153 6 168 5 192
Non-staffing - discontinued 1 128 1 170 687 866
- continued - - - -
TOTAL 7 678 7 323 6 855 6 058
Comments
Overview
The Adcorp Group continues to deliver impressive profit growth with
headline earnings increasing some 28,1% to R45,5 million (2005: R35,6
million) whilst headline earnings per share of 106,5 cents for the six-
month period ended 30 June 2006 (2005: 86,0 cents) increased some 23,8%
compared with the same period last year.
Operating profit of R59,5 million was some 12,8% ahead of the R52,7
million operating profit reported for the prior year period whilst
earnings per share are 58,3 cents compared to the 86,5 cents reported in
the prior year. Earnings per share were adversely affected by a R20,6
million non trading loss on the disposal of the Group"s Corporate
Communications division which was disposed of with effect from 1 March
2006 as previously reported to shareholders.
Pleasing to note is that there were once again, good performances in the
areas of the Group"s two key financial imperatives namely, margin
management and cash generation.
With regard to margin management, whilst individual subsidiary company
operating margins generally improved for the period under review, the
average 4,7% margin for the group was similar to the prior year interim
level of 4,8%. This levelling in average margin percentage is mainly
attributable to changes in profit contribution mix due to the above
average growth in certain lower margin businesses. The conversion ratio
of cash generated by operating activities to operating profit was 81,9%
(2005: 101,1%). R48,7 million cash was generated by operating activities.
Cash movement for the period was a net R34,1 million outflow compared
with an inflow of R32,9 million in the comparative period. This was
mainly due to the payment of a R48,8 million dividend (including STC) in
April 2006 whereas this was previously paid in the second half of the
year.
The solid, continued cash generation performance is attributed to the
continued management focus on credit control. In this regard, debtors"
days outstanding as at 30 June 2006 were at the lowest level ever
achieved by the Group at 30 days, down three days from the 33 days
achieved at the same time last year.
Given the continued positive cash generation ability of the Group, the
Board has declared a dividend of 42 cents per share for the interim
period (2005: 35 cents) some 20% up on the prior interim dividend.
The trading performance of the Group was buoyed by a robust recruitment
market as reflected by the stellar performance of the Group"s Permanent
Recruitment division which increased profitability by 34,0% compared to
the prior year interim period.
Flexible Staffing profits increased by 14,0% compared to the prior year
interim period despite there being five less trading days in the current
year interim trading period than in the prior year. This loss of days
which resulted from calendar differences as well as an unscheduled
election day holiday, impacts both revenue as well as the requirement to
pay additional leave pay which both have a marked impact on
profitability.
As previously reported, the Corporate Communications division has been
disposed of whilst the decision has also been taken to exit the Group"s
Marketing Research operations.
To this extent, options are being evaluated to ensure that the process of
exiting these non-core activities achieves optimal value with minimal
disruption and it is anticipated that the process will be complete before
the end of the financial year.
The decision to exit these non-core businesses has been taken in order to
focus the activities of the Group solely in the area of Human Capital
Management and, specifically, "permanent and flexible staffing" which
significantly dominates the strategic agenda of the Group.
In this way, the Group will be far more focused, will have a simpler
management structure, will achieve greater inter-group collaboration and
synergy and will be able to differentiate its offerings more effectively
which is a critical strategic imperative for the Group. The segment
report format has been changed to show Adcorp"s ongoing staffing
businesses while the "non-staffing" figures show the results of the non-
core businesses Adcorp is in the process of exiting.
The need to further the Group"s Broad Based Black Economic Empowerment
(BBBEE) initiatives in compliance with the Department of Trade and
Industry"s "Codes of Good Practice" remains a critical, strategic
business imperative.
In this regard, the Group is progressing certain initiatives with regard
to consolidating its empowerment shareholding at holding company level as
opposed to the current operating company level shareholdings, which will
be unwound and replaced with a new, group-wide BBBEE structure.
As such, no dividend to existing empowerment shareholders has been
provided for in respect of the six-month trading period ended 30 June
2006 pending the probable, imminent winding up of the existing structure.
Shareholders will be kept appraised of developments in this regard.
Financial Overview
Revenue for the six-month trading period ended 30 June 2006 increased by
15,0% compared to the same period last year.
Operating profit from the core staffing operations increased by 17,9%
year-on-year, whilst earnings from non-core, non-staffing operations
decreased by 29,8%.
Central costs increased by 15,3% largely as the result of the Group no
longer receiving rental income in respect of its head office building
which was sold off in the latter half of 2005. Excluding the impact of
head office rental, other central costs increased by a factor of 8,8%.
As previously advised the Group is in the process of installing Microsoft
Dynamics software at an anticipated cost of R27 million. To date R18,7
million has been spent with most of the balance expected to be settled in
the second half of this year.
A loss on the disposal of the Corporate Communications division of R20,6
million adversely affected profit attributable to ordinary shareholders.
Headline earnings increased by 28,1% to R45,5 million (2005: R35,6
million).
Net cash utilised for the period amounted to R34,1 million which resulted
in net group borrowings of R15,4 million after paying the final dividend
in April 2006 in respect of the 2005 financial year of R48,9 million
(including STC). This resulted in a gearing level of 6,5% which is well
within the Group"s target range of 15%.
The effective tax rate is 28,7% which was influenced by the STC on the
dividend of R5,6 million as well as the learnership tax reduction
totalling R7 million.
Shares in issue increased by 1,301 million as a result of the exercise of
staff share options.
Outlook
The positive growth trend of the interim period is expected to continue
for the remainder of the financial year.
Accounting policies
The interim results have been prepared in accordance with International
Financial Reporting Standards, in a manner consistent with the prior year
and in accordance with IAS 34.
By order of the board
Dr F van Zyl Slabbert RL Pike FD Burd
Chairman Chief Executive Officer Group Financial Director
16 August 2006
Declaration of dividend
Notice is hereby given that an interim dividend of 42 cents per share
(2005: 35 cents per share) was declared on 16 August 2006 payable to
shareholders recorded in the register of the company at the close of
business on the record date appearing below. The salient dates pertaining
to the final dividend are as follows:
Last day to trade cum final dividend Friday, 6 October 2006
First day to trade ex final dividend Monday, 9 October 2006
Record date Friday, 13 October 2006
Payment date Monday, 16 October 2006
No share certificates may be dematerialsed or rematerialsed between
Monday, 9 October and Friday, 16 October 2006, both days inclusive.
Dividend cheques will be posted and electronic payments made, where
applicable, to certificated shareholders on the payment date.
Dematerialised shareholders will have their account with Central
Securities Depository Participant or broker credited on the payment date.
Executive directors RL Pike, HW Barenblatt, C Bomela, FD Burd, M Liphosa,
RB McGregor, PC Swart
Independent Dr F van Zyl Slabbert, SO Shonhiwa, F Khanyile,
Non-executive directors GM Negota, S Sebotsa
Alternate directors TEM Ratshitanga
Company secretary L Sudbury
Transfer secretaries Link Market Services SA (Pty) Limited, 11 Diagonal
Street, Johannesburg, 2001
Sponsor Deloitte & Touche Sponsor Services (Pty) Limited
Date: 16/08/2006 12:19:05 PM Produced by the JSE SENS Department
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